Consumer Finance Deceptive Ad Enforcement Lessons: Part 1
19 January 2016
This two-part series analyzes recent regulatory enforcement trends regarding deceptive advertising within the consumer finance space. Part 1 will address the legal standard that regulators use when evaluating whether advertisements are deceptive and two of the top five lessons learned from 2015 enforcement actions against those that advertise consumer financial products and services. Part 2 will conclude with the final three enforcement lessons and an overview of what these trends mean for companies offering consumer financial products.
Federal regulators took a close look at advertisements for consumer financial products and services in 2015, bringing more than 25 enforcement actions totaling more than $975 million in penalties and consumer redress. In the majority of these actions, regulators evaluated: (1) how advertisements characterize the product being offered, including the nature of the product and the terms and conditions applicable to the advertised features; (2) how well those that offer consumer financial products and services oversee their vendors that advertise directly to consumers, including telemarketers and retailers at the point of sale; and (3) whether advertisements obscure their true source.
Legal Standard for Deceptive Advertising
It is apparent from recent enforcement activity that regulators’ concerns with advertising extends beyond the traditional print, television and radio mediums, and includes information contained on websites, sales practices at the point of sale, and customer service scripts. Determining whether an advertisement is “deceptive” is inherently subjective; however, regulators consistently rely on the standard articulated under the Federal Trade Commission Act in 1983. An act or practice is deceptive if it entails a material representation, omission or practice that is likely to mislead consumers acting reasonably under the circumstances.
In assessing whether an act or practice is “likely to mislead,” the FTC, the Consumer Financial Protection Bureau and the courts look to the net impression of the information presented to the consumer. As part of this assessment, regulators have taken the position that any material term or condition of a product, or any fact that must be disclosed to make the net impression not misleading, must be stated clearly and conspicuously. Under the Truth in Lending Act, regulators will also examine whether required disclosures in advertisements are stated clearly and conspicuously. The TILA also requires that advertisements include certain disclosures when certain trigger terms are used in an advertisement.
Regulators consider a misrepresentation, omission or practice “material” if it “is likely to affect a consumer’s choice of or conduct regarding a product.” Certain information is presumed material — including, for example, the price or cost of a product or service. Under the deception standard, regulators do not have to prove that consumers were actually harmed as long as the act or practice was likely to mislead consumers.
2015 enforcement actions and guidance issued by the FTC, CFPB and banking regulators provide key insights into the evolution of deceptive advertising standards.
Top Lessons from 2015 Enforcement Actions
1. Explain the Product
In 2015, regulators took issue with how institutions characterized various consumer financial products in their advertisements, and whether the advertisements clearly explained the true nature of the product. In a June 2015 CFPB study on reverse mortgage advertisements, for example, the bureau found that some consumers did not understand from certain television and print advertisements that a reverse mortgage is a loan that would need to be repaid in the future. The CFPB noted that most reverse mortgage ads did not include an interest rate, or only displayed an interest rate in very fine print, thereby confusing consumers. The CFPB’s message: if it looks like a loan and functions like a loan (and is a loan), it should be advertised as a loan.
Two enforcement actions further demonstrate the CFPB’s position. In August 2015, the CFPB filed a complaint against a company that advertised what the CFPB considers to be a loan product as a “pension buyout” and “pension advance” and actively denied that the product was a loan. In addition to a deception claim, the CFPB alleged that by denying the product was a loan, the defendant obscured the true nature of the transaction and took unreasonable advantage of consumers, thus rendering the practice unfair and abusive. The CFPB also brought an action in February 2015 against a company that it claims deceptively advertised what appeared to be a general use credit card with a low annual percentage rate and membership fee. The CFPB alleged that consumers actually received a paper membership card that only enabled consumers to purchase products on closed-end credit from the respondent.
In light of these recent actions, institutions should consider whether their advertisements accurately describe the products they are offering or if the advertisements create confusion regarding the nature of the product. Call monitoring and consumer focus groups/studies may provide insight on how consumers interpret the institutions’ marketing materials.
2. Clearly and Conspicuously Disclose Terms and Conditions
In addition to clearly identifying the product being offered, institutions should clearly and conspicuously disclose product terms and conditions. Regulators continue to scrutinize how such terms and conditions are disclosed. In 2015, regulators held parties accountable for various disclosure display issues, including font size, font color as compared to the background color of the advertisement, how long disclosures appeared on television ads, the cadence and speed of oral disclosures, the appearance of an asterisk or other symbol directing consumers to disclosures, and whether required TILA disclosures appeared in a “block of text” that a consumer would overlook.
In March 2015, the FTC engaged in an automobile sales and leasing sweep, holding dealers responsible for alleged violations of the Consumer Leasing Act, the TILA and the prohibition on deceptive acts and practices for advertisements that displayed low monthly payments and low down payments for automobiles. The FTC determined that required disclosures on television, print, web and social media advertisements were not clear and conspicuous. In some cases, the advertisements actually contained disclosures, and sometimes the disclosures were in close proximity to the relevant terms. The FTC alleged, however, that the disclosures were in extremely fine print and difficult to read as compared to the prominent claims of low monthly payments or low down payments.
In a CFPB complaint filed against a payment processor, the CFPB alleged that the company intentionally omitted information about fees associated with a biweekly mortgage payment plan. The company’s mailers allegedly did not mention the fees, and its sales scripts allegedly actively discouraged customer service representatives from disclosing information about certain fees, including instructions, in some cases, to mention the fees only if consumers “persist to ask about fees.” In a May 2015 the CFPB action against a company advertising mortgage products, the bureau took issue with how the company characterized interest rates and alleged that the company failed to disclose that the rates were adjustable.
In developing a robust advertising compliance management system, institutions should consider all consumer touch points as risk areas for deceptive advertising, and monitor for compliance accordingly.
 See FTC Policy Statement on Deception (Oct. 14, 1983), appended to Cliffdale Associates Inc., 103 F.T.C. 110, 174 (1984).
 12 C.F.R. § 1026.24.
 Consumer Financial Protection Bureau, A Closer Look at Reverse Mortgage Advertisements and Consumer Risks (June 2015), available at http://files.consumerfinance.gov/f/201506_cfpb_a-closer-look-at-reverse-mortgage-advertising.pdf.
 Complaint, Consumer Financial Protection Bureau v. Pension Funding et al, No. 8:15-cv-1329 (C.D. Cal. Aug. 20, 2015).
 Stipulated Final Judgment and Order, Consumer Financial Protection Bureau v. Union Workers Credit Services Inc., No. 3:14-cv-04410 (N.D. Tex. Feb. 3, 2015).
 Press Release, FTC, Multiple Law Enforcement Partners Announce Crackdown on Deception, Fraud in Auto Sales, Financing and Leasing (March 26, 2015), available at https://www.ftc.gov/news-events/press-releases/2015/03/ftc-multiple-law-enforcement-partners-announce-crackdown.
 Complaint, Consumer Financial Protection Bureau v. Nationwide Biweekly Administration, et al, No. 3:15-cv-02106 (N.D. Cal. May 11, 2015).
 In the Matter of RMK Financial Corp., No. 2015-CFPB-0007 (April 9, 2015).